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The world economy continues to be weak, and retail sales in the euro zone decline

2022-12-06
1095

[UK sales are expected to improve in December]

Pressure on consumers' budgets persists, but British retailers are poised to benefit from a crucial December sales season as restrictions related to the coronavirus outbreak end. For many, this Christmas season will be the first time in three years that colleagues, family and friends will be able to get together without the restrictions imposed by the pandemic. We think there is potential to boost gift, food and alcohol sales.


[The Bank of England may further delay the sale of long-term British government bonds under the APF]

The BoE is again expected to delay the sale of gilts in its Asset Purchase Facility (APF) with maturities beyond 20 years until it sells more gilts from its temporary gilt-buying portfolio. In doing so, the BOE avoided being accused of being a source of market disruption for selling bonds to the market via the APF, despite apparently limited interest to longs in reverse order-driven sales. The Bank of England has shelved plans to sell long-term gilts in the fourth quarter of 2022 and will only sell gilts in the APF with maturities of 20 years or less.

[November PMI data shows that the euro zone economy is not in deep recession]

The latest final European November PMI data show that the euro zone is headed for a mild recession. That could maintain the ECB's bias toward unwinding easing rather than starting discussions of a pause in rate hikes.

There are signs that price pressures (especially input prices) are easing, and the recovery has been uneven across the euro area, reflecting the differential transmission of energy price shocks according to fiscal policy. Updated economic forecasts after the European Central Bank's interest rate meeting next week are likely to point to a slight contraction in the euro zone economy.

[Retail sales in the euro area may continue to decline in the next few months]

The 1.8% month-on-month decline in retail sales in the euro zone in October is unlikely to reverse any time soon as consumers are pulling back on spending as purchasing power shrinks sharply. With real wages still mired in deep negative territory and no immediate recovery expected, the retail environment remains tricky in the coming months, he said. Inventories are building as supply chain bottlenecks recede, but it's uncertain whether sales during the holiday season will meet expectations as demand is rapidly dwindling.

[The Bank of Canada may strengthen the weakness of the Canadian dollar]

The Bank of Canada is expected to remain somewhat cautious. We believe that the pricing of the terminal interest rate (4.25%) is reasonable. After Wednesday's interest rate hike, the market may increase its bets that the interest rate has reached the terminal interest rate. At this time, the Bank of Canada is unlikely to behave like this, but if the inflation data improves and the economic data deteriorates, the Bank of Canada may pause interest rate hikes in January. Weaker economic data from Canada, global optimism that inflation has peaked and signs of a slowdown in U.S. growth have all pointed to the end of the Bank of Canada’s tightening cycle. If that happens this week, it will reinforce our view that CAD underperforming other G10 currencies will become the norm.


[U.S.-Germany 10-year treasury bond spread is expected to narrow to 100 basis points in 2023]

The spread between 10-year U.S. and German bund yields could narrow to nearly 100 basis points by 2023. The current spread between the two is 172 basis points. The market expects that core inflation in the US may have peaked, while core HICP in the euro area has not yet peaked. Another reason is that with the ECB raising interest rates in the spring and the Fed already "getting ahead", the euro's real curve is in line with a more accommodative policy stance. The strategists say the ECB is about to start quantitative tightening, while the Fed may consider its own QT program.

[Russian oil price cap plan is milder than expected]

Concerns about a G7-led plan to curb Russian oil supplies eased after the European Union capped Russian oil prices around the selling price of Russian oil. The price ceiling of $60 a barrel is close to Russia's current oil sales price. At the same time, the European Union has softened the proposal that "once found to have violated the price-limiting agreement, the companies involved will be permanently banned". Hancock said the price cap was higher than expected, less stringent in enforcement and included a number of exemptions. The key point, in our view, is that the plan sends a signal that the G7 is trying to keep Russian oil on the market, which will ultimately push sanctions towards less stringent measures and enforcement.

The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.

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